THE nine distributors here of Lehman Minibonds will help fund a warchest to support any legal defence that might be needed during the process of unwinding the failed investments.

The Monetary Authority of Singapore (MAS) said on Friday the financial institutions have agreed to contribute to the receivers' cost of getting expert advice on noteholders' legal rights.

They are making the contributions as the collateral from the notes, which would normally be used for such expenses, cannot be realised until all legal issues have been resolved.

The MAS confirmed that the expenses will be refunded to the distributors from any proceeds that are recovered.

Minibonds series 1 and 5 to 10 have since defaulted and the three receivers appointed from PricewaterhouseCoopers (PwC) are in the process of unwinding the notes.

The possibility of legal challenges to the unwinding process arose last week when the Minibonds trustee, HSBC Institutional Trust Services Singapore, said lawyers involved in bankruptcy proceedings over Lehman Brothers in the United States might take action.

The Straits Times understands that Lehman's lawyers have reserved the right to challenge the unwinding process but have yet to start any action.

With no challenge arising yet, it is hard to establish the potential size of the fighting fund but the MAS said it welcomes the move by the distributors to 'help vigorously defend noteholders' legal rights.'

The central bank said the receivers have retained senior lawyers in the relevant jurisdictions to provide legal advice.

It also said it will 'continue to consult with our legal and financial advisers ... on the implications of the issues raised by lawyers representing Lehman Brothers'.

The total issue size of Minibonds was $508 million, of which $375 million was sold to about 8,000 retail investors here through the nine distributors.